Closure of the Business
It is important to remember that even if you were forced to close your doors, you still have an active 401(k) Plan and separate steps must be taken to terminate the plan with the IRS and Department of Labor. If this pertains to your business, LRS is able to assist with the plan termination; please contact us as email@example.com
to engage in the plan termination process so that we may assist in properly terminating your plan with the IRS/DOL.
- Employer Securities (QES), the private stock of the C Corporation that is held/owned by the 401(k) Plan must be redeemed (e.g. bought back). This means that the C Corporation needs to buy the stock back from the Plan.
- This requirement applies even if the value of the stock is now at $0, due to business closure. The Department of Labor still expects to see, before the 401(k) Plan is terminated, that the stock was removed from the Plan.
- If any additional investments, assets, dollars (e.g. cash) are held in the name of the Plan, those assets must be distributed or rolled/transferred out of the Plan before the Plan can be fully terminated and the final IRS Form 5500 filed.
- The C Corporation can then be dissolved and the Plan can be terminated, pursuant to Department of Labor and Internal Revenue Service requirements.
Sale of the Business
- The proceeds from the sale of the business should be returned to the C Corporation. The proceeds from the sale of the business should be allocated to the owners of the C Corporation, based on respective ownership. The proceeds from the sale of the business should NOT be allocated solely to the individual business owner, if the Plan is also an owner of the C Corporation.
- The Employer Securities, the private stock of the C Corporation that is held/owned by the 401(k) Plan should be redeemed and the sales proceeds allocated pursuant to ownership of the C Corporation. For example, if the Plan is a 75% owner of the C Corporation, the 401(k) Plan is entitled to 75% of the proceeds of the sale.
- In the alternative, the business owner can leave the sales proceeds in the C Corporation and invest in a new/other business venture.
- If no further business is to be conducted and the stock is redeemed, the C Corporation can then be dissolved and the Plan can be terminated, pursuant to Department of Labor and Internal Revenue Service requirements.
Article ID: 59, Created: 6/9/2021 at 3:18 PM, Modified: 12/6/2022 at 4:14 PM